Thursday, February 14, 2008

Credit card rates for the bond markets?

 I wonder if they will offer job loss insurance for $2 per month, or Air Miles on their bonds if they end up paying 14% credit card-style interest?  We'll see in 2 weeks what this brings... but it doesn't look good.

Investors set prices for bonds by bidding for them at bond auctions approximately every month. If the bonds are perceived as risky, investors can demand a higher interest rate to buy them, and the interest rate rises. If they are perceived as so risky that no one wants to buy them and the auction fails, the bonds automatically rise to the maximum rate allowed for the person who previously bought them and is now stuck with them until the next month's auction.
In Citizens' case, that maximum rate is 14 percent.

Source: Bond troubles may dog Citizens - New Orleans Louisiana Local & Small Business News – Economics & Finance News Articles - NOLA.com

Apparently nobody wants bonds due to the amount of risk involved if any of the insurance companies default.  Over $10 billion worth of bonds failed to auction this week, which, according to the article, could cause rates to rise anywhere from 8-14% during the next auction.

It doesn't help that they lost their data during the last storm.

"For any of these, we're going to have financial data," she said.
Citizens has been unable to produce an audited financial statement since the 2005 storms because of problems with its computer system, and the group has been working for most of the past year on extracting the data and reconstructing it so that it can be audited.

Wednesday March 5, 2008 is the next full moon if you're superstitious.  With the stock market (and now the bond market) the way it is,  throwing dice, reading palms or dealing tarot cards are about the best ways to predict future prices.

No comments: